Donor-Advised Funds in 2005

The Chronicle of Philanthropy (May 4, 2006) reported that assets of the nation’s largest donor-advised funds grew by a median of more than 20 percent from 2004 to 2005. Likewise, the amount granted to charities from these donor-advised funds increased by 20.8 percent from 2004 to 2005. Officials at the donor-advised funds claimed that the stock market was the primary reason for the increases.

The Chronicle also noted that competition among hosting organizations of donor-advised funds has led to reductions in administrative fees and may lead to consolidation. Rates at community foundations typically range between 1 and 1.5 percent of fund assets. Commercial hosting organizations, like Schwab and Fidelity, have been able to offer lower rates because (i) investment options are more easily available to them, and (ii) they generally provide less guidance. For example, the Schwab fund charges donors to the fund about 0.5 percent of their accounts’ assets annually for administrative costs, like processing grant recommendations, and about 0.7 percent for investment management fees. Fidelity announced that it would lower its administrative fees in July from 1 percent to about 0.6 percent of an account’s total assets, with a greater reduction planned for accounts with more than $500,000. The community foundations are beginning to respond.

The Marin Community Foundation recently reduced its administrative fees to 0.5 percent. The East Bay Community Foundation has strengthened its relationships with financial advisors. Other community foundations, like the Renaissance Charitable Foundation in Indianapolis, have allied themselves with commercial investment companies. Meanwhile, the Congressional scrutiny of donor-advised funds continues …

About Us

Gene Takagi is the managing attorney of the NEO Law Group. Follow Gene on Twitter @GTak.

Erin Bradrick is senior counsel with the NEO Law Group. Follow Erin on Twitter @erinbradrick.